What happens: at a certain price, a lot of buyers suddenly appeared with a shortage of sellers, and the price rose sharply. But if the increased price would become attractive to sellers, they would quickly rush to sell the asset in order to manage to conclude a profitable deal. However, we see that the price is going down extremely reluctantly, i.e. either seller is pretty sluggish and in no hurry, or buyers buy up all sales, considering the price is still too low. From both of these situations, it follows that the price, according to the market, is currently not high enough and with a higher probability will go further. It is such a price pattern for us that it will be a priority when receiving an input signal.
And it looks more or less mutual interest of buyers and sellers:
In this case, on the contrary, we see that at “low” prices there is substantial demand, and at “high” prices there is substantial interest from sellers. The situation is outweighed by probability, therefore, even if we get an entry signal at such a price pattern, it is undesirable to open the lock, but it is better to sit and wait again.
Again, I’ll repeat it directly, try to remind yourself of this during the operation to exit the castle: the method for searching for such a moment in the market when there are more favorable than unfavorable conditions is described above. But you don’t have to wait for that “aha since there is demand and there is no supply, it means that now it’s sure to trample where it is needed” in gratitude for the fact that you did get a cool signal. Yes, the probability is higher, but there is still no certainty.
So, in the case of a positive outcome, the lock will close without loss or even profit. In the case of a negative outcome, you will have to get a stop loss, alas and ah. I understand that this is dumb because then the loss will be even greater than it was before in the “castle”. But look at it this way: you pay 20 rubles for a lottery ticket with a more than 50% chance of winning 80 rubles. As if yes, you can lose 20 rubles and all, but you can earn 60. In the case of a castle, we pay the probability of a slight increase in loss for the probability of covering it completely.
Next, a few basic points about probability. Rough calculations are used, solely for a more understandable explanation of the essence.
Imagine that the probability of price movement up and down at our entry point is 50%. Therefore, if stop-loss = take profit, then the probability of triggering each of them is also 50%. Those. out of 4 transactions, 2 will be in profit, and 2 at a loss. The final result will be 0.
Thus, if under the same conditions of equal probability (when moving the same distance both up and down) we increase the take and leave the previous stop, then we will REDUCE the probability of reaching the take and increase the probability of the stop loss triggering.
For example, if a take is 3 times the stop, then out of 4 trades, already 3 will be unprofitable (with a small loss), and 1 profitable (with a large profit), which will just cover 3 previous losses.
By analogy, if we increase the stop, and leave the take the same, then we will INCREASE the probability of reaching the take, REDUCING the probability of reaching the stop.
In this case, 1 large losing trade will be covered by 3 small profitable trades.
Taking all this into account, the trader needs to figure out which way it will be more comfortable for him to leave the castle.
If the style is “more convenient” at one stroke – look for strategies where the take exceeds the stop. The take in your case will be the value of your “lock” loss.
If it’s more convenient “a little bit” but with a higher probability – respectively, we are looking for strategies where the take is less than or equal to stop loss.
There are options when everything goes a little off-topic. For example, when in the first case a stop loss is triggered. Or when in the second case 2 take-action is triggered, and then stop… Panic in these cases is not worth it – this is the market, it can do that 🙂 I suggest developing a trading savvy, figuring out how you can act in such cases. If you still have difficulties – write in the comments, I will help.
So, when we figured out the strategy, the algorithm for our next steps is as follows:
- We are waiting for the signal to enter the system to be received at the desired type of price movement (impulse);
- Take a slow deep breath and slow exhale;
- Close the “castle” position, which at the moment makes a profit (in the figure with open orders this is a purchase). Unprofitable we leave in the figure with open orders is a sale)
- Still, we set the stop loss at “unprofitable” in the moment of position according to the rules of the strategy.
- We are waiting.
Everything further does not depend on us. We did everything we could – maximized the likelihood of a positive outcome. And if you did everything according to the algorithm, then you can be proud of yourself: at these very moments of analysis, expectations of the right conditions and actions on the system, you made one of the most professional actions in your career as a trader.
It should be borne in mind that getting out of the castle is catching luck by the tail. At its core, any attempt to leave the castle is just a standard deal. Only the gain in it is not profit, but the elimination of the current loss and loss – the increase in loss is not the value of the stop loss. Before you leave the castle, you need to understand – the chance to do this is “paid”. For the chance to completely eliminate the loss, you pay the risk of a slight further increase.
Otherwise (if you don’t want to “pay”), you doom yourself to search for a “magic” signal, after which the price of 100% will go where it should.
If you, so to speak, have accepted the “paleness” of this chance with your soul, then it’s easier.